BATS likely to enter U.S. options space
NEW YORK (Reuters) - The head of the BATS Exchange, the fourth-biggest U.S. stock market and a smaller player in Europe, said on Monday it would most likely enter the U.S. options space within the next two years, and may also expand into the Canadian and Brazilian equities markets.
Joe Ratterman, BATS chief executive, told the Reuters Exchanges and Trading Summit in New York that any options venture would very likely employ a "maker-taker" pricing model, which he expects to gain traction.
"We've been putting most of our effort and research in development of a business plan into options right now," Ratterman said. "Europe is the first real big seed that we planted outside the U.S. and it's the first of many that we have yet to go."
The CEO added that the expansion of the so-called penny pilot program -- a move toward quoting options in one-cent increments -- has changed the option market's structure, creating new business models to attract market share.
There are now seven U.S. options venues. The largest ones, Chicago Board Options Exchange and International Securities Exchange, use a traditional model in which an exchange charges fees to market-makers for completing a trade execution.
Maker-taker, used by some smaller exchanges, rebates those who post trade orders and charges those who match the orders.
Ratterman said he expects options market share to shift "dramatically" toward maker-taker, which now accounts for about 20 percent of the market. Maker-taker is now used by Boston Options Exchange, Nasdaq Options Market and Arca NYSE.
Ratterman said he was looking at other asset classes. He said the Canadian market is attractive because securities are handled and traded similarly to the U.S. market, the proximity in terms of time zones, cultural issues and the English language.
"Right now, if I had to guess, it's on our one- to two-year radar," he said, referring to a Canadian venture.
More high-frequency traders and alternative venues also make Canada attractive, Ratterman said. The Toronto Stock Exchange, run by TMX Group (X.TO), handles more than 90 percent of Canadian equity trade.
(For summit blog: blogs.reuters.com/summits/)
(Reporting by Doris Frankel; Editing by Gary Hill)
